SC has an easy way to lift itself from poverty: Crack down on predatory lending practices | Opinion
South Carolina spends billions of dollars to foster industry and education that can raise citizens out of poverty. But at the same time, it enables corporate moves that ensure that the poor stay poor.
It could be called state-supported poverty. It’s institutionalized poverty. It’s a sad story. Actually, it’s pathetic. But it’s legal.
State Sen. Tom Davis, a Republican from Beaufort County, is sponsoring a new attempt to rein in the egregious societal damage done by lenders who prey upon the poor with loans of triple-digit interest and high fees that the borrower cannot afford.
They are loans made with no evidence they can be repaid, and when they are not repaid, they can be “flipped” and flipped again so the poor borrower can end up paying interest for years without ever getting out from under the loan.
We’re talking about interest in the 200% to 300% range.
Davis says that is the business model: to keep the borrower on the hook without paying the principal of the loan.
It is a very lucrative business, using sophisticated meta-data to target vulnerable borrowers, including the most vulnerable times, like when their kids want new clothes for school, and when parents feel pressure to provide a Christmas for their children.
“They don’t want them to repay the loan,” Davis said. “I’ve met with the families. We’ve had testimony that people have been on these things for 10 years without being able to repay the principal. They just pay interest.
“To me, this is a despicable practice.”
Davis has sponsored the Predatory Lending Act, S. 910, that has had four public hearings and has advanced out of committee. He stresses that this is not an attempt to shut down the “installment loan” industry that includes institutions that do not practice or support the tactics his bill targets.
A bill sponsored last year by Sen. Katrina Shealy, R-Lexington, would have capped the interest rate that lenders could charge at 36%, which matches the limit the federal government sets on what active-duty members of the service can be charged. That didn’t get out of committee.
Davis says he’s among many who don’t like setting caps in a free marketplace. But he is adamantly opposed to the predatory practices his bill addresses.
His bill would require due diligence by a lender to prove a person could repay a loan before making the loan. It specifically targets the egregious practice of sending checks to people so they’ll cash them and then find themselves in a crippling cycle to repay a loan they could not afford in the first place.
“It’s like sending heroin to an addict,” Davis said.
The lenders that are getting filthy rich off this — key word “filthy” — call these “courtesy” checks. Lenders know they will lose their cash cow if state law were to change, so they will flex their muscle by pouring massive amounts of cash into the legislative process.
A lot of money is at stake — money that should not be extracted with a heavy hand from the poor.
Jessica Holdman reported in January for the South Carolina Daily Gazette that in 2022, South Carolinians had $2.8 billion in high-interest loan debt, with $650 million of that being two months past due.
Davis says there’s plenty of room to make money on what are to be short-term loans under existing law. “We’re not plowing new ground here,” he said. “State law already addresses this lending space.
“What I object to is the business tactics,” he said. “I just don’t think this is something that is done in a civilized society.”
But to make what seems like an obvious change could take a long time, Davis said. But he has the facts on his side. And a number of churches as well — organizations that don’t usually weigh in on lawmaking, but know what the Scriptures say about protecting the poor. Davis said the Catholic church has shown itself to be especially vested in this issue.
The other thing this bill needs is the support of decent people at-large.
David Lauderdale can be reached at LauderdaleColumn@gmail.com.
